Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

Over the past decade, the growth potential of the Hungarian economy has declined substantially. Trend productivity
has ceased to increase, and investment has fallen to historically low levels. To an important extent, the explanation
lies in a business environment characterised by high administrative burdens, regulatory volatility, barriers to growth
of small and medium-sized enterprises (SMEs) and entrepreneurship, and limited competition in major non-tradable
sectors, problems which have sometimes become worse in recent years. Under these conditions, many SMEs find it
hard to leave semi-informality and grow. Large multinational firms operating in manufacturing often have supplier
networks weakly anchored in Hungary, while those in the non-tradable sectors sometimes face little competitive
pressure; in both cases, positive spillovers to the domestic economy remain limited.

Steps should be taken both at the economy-wide level and in specific sectors to increase investment and restore
productivity growth. Such measures must include fostering greater regulatory stability, inter alia by reducing the flow
of new regulation and improving its quality, not least in taxation. Investor confidence would benefit from promoting
trust and transparency in public institutions. Apart from vigorous competition enforcement across the economy, it is
essential to remove sector-specific obstacles to competition, such as barriers to entry of different types, lock-in effects
and distortive regulated prices, in retail, professional services, energy, and telecommunications. This Working Paper
relates to the 2014 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/economic-survey-hungary.htm).